During the months of April through September, the following total utility costs
ID: 2370120 • Letter: D
Question
During the months of April through September, the following total utility costs were paid at various production volumes:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Month
Total Utility Costs
Total Production Volume
April
$5,000
16,000 units
May
7,000
26,000 units
June
8,000
32,000 units
July
6,000
20,000 units
August
4,000
12,000 units
September
10,000
36,000 units
a. Use the high-low method to calculate the cost formula utility costs.
b. If the production volume were expected to be 22,000 units for the month of November, what amount of total costs would be expected?
Month
Total Utility Costs
Total Production Volume
April
$5,000
16,000 units
May
7,000
26,000 units
June
8,000
32,000 units
July
6,000
20,000 units
August
4,000
12,000 units
September
10,000
36,000 units
Explanation / Answer
Hello, here's detailed work.. plzz rate fully.
The lowest and highest activity levels are in August(12000 units) and September(36000 units).
Variable cost per unit = change in cost / change in activity.
= ($10000 - 4000$)/(36000 - 12000) = $ 0.25 per unit
Fixed cost per month = total cost less variable cost:
at 36000 units: $10000-($0.25 * 36000) = $1000 per month
at 12000 units: $4000 -($0.25 * 12000) = $ 1000 per month
So, the utilitycostfunction is
(a)
Y(total cost) = $ 1000 per month + ($0.25 * number of units).
(b) number of units for nov = 22000
then total cost (Y) = $ 6500
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